Combo Products
What is a “Combo” Product?
A combination product is a financial product which offers multiple benefits to the client – it will cover their accumulation with an annuity and long term care insurance (LTCI) needs in one contract. On January 1, 2010 the Pension Protection Act (“PPA”) provisions are effective. In 2010 using cash value withdrawals from a combination product designed to pay for qualified LTC expenses will not be considered taxable income, but rather a reduction in cost basis. Also, from certain combination products extended benefits received will also be excludable from taxable income.
What were the new PPA Provisions in 2010?
The PPA has several provisions to address annuities that include long term care benefits and riders. These new provisions have made nonqualified annuities with LTCI benefits much more attractive to consumers.
1. Tax-deferred growth within annuities pays for the LTCI benefits on a tax-free basis.
2. Rider charges deducted from annuities to pay for LTCI benefits are no longer a taxable event.
3. The new rules only apply to non-qualified annuities coupled with tax-qualified long term care riders. A tax-qualified long term care rider provides various levels of LTCI benefits, including benefits for cognitive impairments such as Alzheimer's.
4. Clients can also make a 1035 exchange into a combo annuity. This allows clients with existing annuities that do not have these types of benefits to take advantage of LTCI benefits through a combo annuity.
Why is this Important for my Clients?
According to Gallup’s 2005 survey of non-qualified annuity owners, age 64+:
• 81 percent surveyed intend to use their annuity as a financial resource to avoid being a financial burden on children.
• 74 percent surveyed intend to use their annuity as an emergency fund in the case of a catastrophic illness or for nursing home care.
The need for long term care has never been greater. In 2009, the average yearly cost for a private pay room in a nursing home was $79,935.1 The average long term care stay was 3.7 years for women and 2.2 years for men, with roughly 20 percent of Americans requiring long term care coverage for greater than five years. Many consumers believe that they will never need long-term insurance so the clients attempts to self-fund based on believing they will not need or confusion. Medicare only pays for home health care that has been deemed medically necessary or care in a skilled nursing facility.2 Most nursing home care takes place in an intermediate care facility which is not covered under Medicare. Medicaid, on the other hand, only pays for the impoverished.
By exchanging a current annuity for a Combo annuity (PPA compliant), your clients can be better matched with a solution that will meet their needs while providing a tax advantage. Contact Us to learn more about the PPA compliant products we offer with available lifetime LTC benefits and guaranteed premiums!
Call To Discuss “Combo Products”
1-888-282-3919 – Option 1
Note: This information is discussion for general educational purposes and should not be considered tax advice. Please consult your personal tax advisor or your client's tax advisor for specific tax advice.
1. Metlife 2009 Study Viewed February 15, 2010.
www.metlife.com/mmi/
